More Americans are working past the traditional retirement age of 65 than they have since the turn of the century, according to a recent study by the Pew Research Center. The survey found 18.8% of Americans at least 65-years-old reported being employed part-time or full-time in May 2016. That translates to 9 million people laboring through their golden years. It also marks a steady increase in the amount of people employed at this age and older, which Pew has tracked since 2000 when the rate stood at 12.8%.
This phenomenon could put employers at a major disadvantage as they struggle to endure rising benefits costs and a younger workforce with less room for advancement.
And while many Americans are working past retirement age because they want to, several are doing so because they’re unaware they are financially secure enough to retire. Tim Walsh, senior managing director, TIAA, says this is something his firm has been working to counter in the non-profit sector.
“Plan sponsors can follow some steps to help clear a batter path for those reluctant retirees,” says Walsh.
He notes that path begins with effective communication and providing participants with the tools and resources they need to determine whether they will be ready to retire on time, or need to take further action to prepare. An important aspect of that strategy could be lifetime-income projections based on factors such as account balances, savings rates, investments and capital market assumptions. In fact, Congress is currently looking at the Lifetime Income Disclosure Act, which would require employers to take similar steps.
Walsh says even monthly-income projections on participant statements can be enough to trigger participants to start thinking about how they are going to spend their retirement years and what they need to save for.
“What we’ve heard from participants is that they tend to think in buckets,” Walsh explains. “They want to make sure they have a bucket of dollars to pay for all core expenses whether it’s food, shelter, or clothing. The second bucket is the ‘fun bucket.’ They want to be able to fund vacations and spend money on grandkids. A third is for potential emergency needs and health care expenses. If there is anything left over, legacy is important for a lot of participants.”
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To that extent, Walsh says it is also important for plan sponsors to address participant needs beyond the financial realm and into the emotional one. He says his firm has had success with tools designed to help employees visualize what retirement could look like and how they could spend it based on their savings habits.
Part of this effort is led through TIAA’s “Preparing for Retirement” website geared at employees within five years of retirement. Through educational materials and a questionnaire, the site aims to help participants visualize their retirement lifestyle and come up with a personalized plan to achieve it. It also offers a “qualitative information on the role various income strategies like social security and lifetime income from annuities can play in retirement.” So far, TIAA is reporting an 86% completion rate with the process.
Walsh adds, “Plan sponsors need to design a retirement plan to make sure participants will be able to fund these buckets. That’s where having an investment menu that provides for guaranteed income in retirement such as a fixed annuity, but also growth options like mutual funds, can help.”
Furthermore, offering participants access to personal financial and retirement-planning advice can be crucial.
“Participants age 55, and even younger than that, want to be able to sit across the table from an adviser and make sure they have a plan in place,” says Walsh. He adds these scenarios could be excellent opportunities for participants nearing retirement age to make necessary changes in order to achieve their retirement goals, whether it be aiming for a different income-replacement ratio or seeking guaranteed income outside of Social Security benefits.
Walsh says these tools can motivate employees to start saving around what they actually want to do in retirement such as pursuing a hobby, doing volunteer work, or anything else. “It really helps them see a day in the life,” he explains.
The Pew Research Center’s survey was based on employment data from the Bureau of Labor Statistics and more information can be found at PewResearch.org.
“Income Insights: Mental Accounting in Retirement” can be found at TIAA.org.